IDX commissioner Pandu Sjahrir discusses market reforms, SPACs and the next big IPOs

IDX commissioner Pandu Sjahrir (left) speaks with DealStreetAsia editor Deepshikha Monga at Asia PE-VC Summit 2021.

Following the blockbuster initial public offering (IPO) of homegrown e-commerce major Bukalapak, the Indonesia Stock Exchange (IDX) is gearing up to welcome more technology companies by revamping its rules.

Indonesia is working on guidelines on issues such as dual-class shares and is likely to announce new rules this year, IDX commissioner Pandu Sjahrir said at DealStreetAsia’s Asia PE-VC Summit 2021.

The authorities are working on addressing issues related to the ratio of voting rights and the duration of such rights, among others, he added.

“It’s not going to be perfect, to be honest, but I think it will be close to whatever best practices are out there,” Sjahrir said.

Sjahrir, who also serves as a managing partner at Indies Capital and is the chairman of Sea Group, also shared the exchange’s views on surging retail investor participation, attracting more institutional investors and rules pertaining to special purpose acquisition companies (SPACs).

“We’re focusing a lot on multiple voting shares and I think after that we will be focusing on the SPACs,” he said, noting that regulation pertaining to blank cheque companies is likely to be announced in 2022.

Here is a transcript of a fireside chat with Pandu Sjahrir. The text has been edited for brevity and clarity. 

How much should we read into the Bukalapak stock’s rather tepid performance since its listing? 

I think [the] market is just trying to learn how to value the business. It’s the first new economy business that has entered [the stock market]. If I’m not mistaken, the market welcomed the first earnings report of Bukalapak and it’s positive. 

Traveloka, another local company, is understood to be eyeing a traditional IPO in the US after its merger with the Bridgetown Holdings SPAC fell through. Why do you think an IDX listing is still not the first option for it, and perhaps other startups?

To be honest, it depends on the company. If you’re operating a business out of Indonesia, then I think Indonesia would offer a very compelling reason, especially on the tax front. If you are a founder, the selling shareholders only have to pay a 0.5% tax once and then a 0.1% capital gains tax, which is the most competitive you can find in any market. 

Number two, from the experience this year, there’s significant depth in the market. I think it’s more [about] the quality of the business that you’re offering, and then the market is there for the taking. 

And lastly, I think, and more importantly, by listing in Indonesia, there’s actually strong stakeholder engagement that you can do, especially if your business is technology. So, being seen as local becomes more and more important, so that’s also another consideration for any companies that are looking at listing but again it’s a choice for some of these companies.

It can also be a structure choice. If they were established in other jurisdictions, maybe it’s more tax-efficient not just for the founders, but also from the investors’ perspective. That’s also something to be considered.

What is the update on the reforms that IDX and the Financial Services Authority (OJK) have been working on, including dual-class shares and relaxing restrictions on loss-making companies?

Quite soon. There are a couple of key things that people are looking at. Number one is voting rights for founders. Is [the voting rights ratio] 1 to 30, 1 to 50 or 1 to 60? I think the concept of founder shares, or multiple voting shares, is there already. So these are more of the technicalities.

Number two, how long does the founders’ voting right last? Does it remain until the founders are deceased or leave? What happens, for example, if there are more rights issuance? 

And lastly, in Indonesia, what happens if you are doing a dual listing? If you list here, how long will it take for you to list elsewhere? And how do you price it? That’s obviously a discussion not just between companies but also with the underwriter community. So that’s a little bit of a technicality because it’s also so new. It’s not going to be perfect, to be honest, but I think it will be there close to whatever best practices are out there.

Is it fair to expect the new regulations regarding dual-class shares and others to be announced later this year?

Yeah. Insha Allah [God willing] is probably the right way to say it.

How does IDX plan to ensure investor protection amid all the reforms?

That’s the most important [factor]. In fact, if you ask me why it’s taking a little bit more time, it’s because a lot of thinking is happening with respect to investors’ protection. Do we have to do a 100% lockup for all the shares? Because that’s also a potential risk for retail investors. Our thinking is always [about] the lowest common denominator. We’re talking about the everyday person that makes $500 a month and invests $10-15 into a stock. Those are the guys that we are trying to protect. 

Retail investors have jumped on the stock market bandwagon in Indonesia in an unprecedented way. About one million new equity investors started trading in the first eight months of this year. How critical is retail participation and how do you plan to further boost it?

Number one, we’ve been so surprised. After COVID, everybody is getting into the action, which is really cool. On average, the average age [of a retail investor in Indonesia] is 25 and it is evenly split between men and women. They’re young, smart and want to grow their capital base. The average income is still relatively small but we look at them as customers that can be with us for the next 30-40 years.

So our job has been communicating. We’re no longer just using media such as yourself; we use social media, which has seen significant growth. We have about 100 to 130 micro-influencers and large influencers and even the largest celebrities in Indonesia who are talking about stocks. 

In my generation – and I am not that old – we always talked about investing in real estate and other things but this recent surge in investments in public stocks in the last year has been super welcome.

Another thing, thanks to the new economy, there are a lot of new players that are looking to increase this by growing their total addressable market of the stock market. So today, the stock market is about 1.5% to 1.8% of the total population. Last year was below 1%, so it is significant growth. Now the question is can we grow similar to the developed markets where you can have more than half of the population [participating in the stock markets]? 

I think that’s why a lot of investors are super excited looking at Indonesia either through the capital markets or private markets, investing in some of these new technology players that are looking to become brokers or asset managers. Our job is to work together with these technology players to help educate the market the right way. We’re actually quite excited about the development. I think we’re just starting and hopefully getting to that inflexion point.

How do you plan to draw more institutional investors because higher retail participation raises the risk of market volatility?

Our job is actually to bring more large-scale companies into the market. We are not just relying on, for example, the rights issue that has recently happened with BRI [Bank Rakyat Indonesia]. There are going to be a couple more IPOs at about $1.5 and $1 billion-plus. One is in the renewable business and the other is a digital infra business. And then obviously [there will be] some of the new tech.

I think if you look at the overall composition, technology globally has played a bigger part in the composition of the capital markets. In Indonesia, it has just started. But if you look at the private markets, the investment in Indonesia has been the biggest in Southeast Asia for the last five years. Now how do you convert that into the public market? If you look at the private market in Indonesia, it’s been about 7-8 years since it started. It is cool that we are near that gestation period of investment. 

I think you’re gonna see a lot of influx into the public markets. You will see more traction from institutional investors, both domestic and foreign. If we look at the last IPO [Bukalpak] and rights issue [BRI], the majority came from foreign investors, which is very welcome. 

It is not just getting more demand-side [participation] from both retail and institutional investors but our job is to get larger and larger companies [to list on the stock exchange]. We got to chase elephants into the business.

MSCI China is a quarter tech weighted, while MSCI Indonesia is zero tech weighted. How much do you think IDX can be comprised of tech?

After the recent listing, you got to move it into an LQ. We call it LQ45 which is the top 45 companies weighted generally by market cap. There is also the multiple voting shares and the stuff that we discussed about accommodating tech companies into the [IDX] mainboard. 

We said we can weigh that vis-a-vis the growth of the equity as well as so the growth of the sales of these businesses. So if you have that, some of the companies that are still “loss-making” can also enter the mainboard. This is not necessarily just about the Bukalapak or GoTo, but other potential companies that will be there, so we have to make the rules fair for everyone.

It’ll be probably six to eight months for technology companies to come into the index and the percentage will be definitely higher than zero. 

We have an audience question – 3X more Indonesians are trading in crypto compared to the equity market. Is this a concern?

This is one I’m very interested to discuss, but we probably need a different fireside chat. Crypto is now about 8 million users – roughly those are the numbers – and these are again young people. 

Is it a concern? I see it as an opportunity but also something to be watched over closely. If it becomes a more significant part of your society, then you have to start thinking of how to potentially regulate [crypto]. To be honest, personally, I welcome the opportunity. But in terms of making sure that the everyday person understands the risk, that’s also something that I think every person on the regulation side and the government side has to also strongly consider because there’s no real regulation out there globally.

So we look at what’s happening in the US and China, I guess that’s the two places we can look at. Obviously, look at our neighbouring country Singapore but obviously, it is wealthier but also much smaller. I mean it is [population of] 6 million. Indonesia, I mentioned 8 million [crypto users] and that’s just in the last 15 months. That is bigger than Singapore today. I think the regulators are really looking at this closely. Right now, it’s under the Ministry of Trade (Bappebti). 

The question is, “Is this a commodity or a fiat currency?” And if it’s fiat, then the central bank and OJK should be looking at it. We also understand the risk across the country, “potentially” things that may be related to fraud, money being spent elsewhere and things that can be of scale. So that’s something that we are all watching very closely.

Let’s talk about SPACs. Singapore allowed the listing of blank cheque firms in September and the IDX was also looking at allowing these listings. Where do things stand at the moment?

We are focusing a lot on the multiple voting shares and after that, we will be focusing on SPACs. I think a SPAC is a good alternative, especially for companies based in this part of the world. If you look at the US, you got to have a minimum market cap of at least $2 billion to $3 billion for it to even matter a bit because the market is that deep.

Indonesia can play a role for companies that are smaller than that. So, $300 million to $2 billion, that’s probably the right market cap for companies to list in our stock market. The good thing is if they are in this market, there’s also more name recognition. So, I think [SPAC] most likely will be next year’s discussion.

SGX has also announced new initiatives, including state-backed funds to boost the stock market. Can we expect a similar initiative in Indonesia?

I think my strong push will be on the supply side, having really awesome companies to list in Indonesia. That’s probably the biggest thing that we need to focus on. So, our job is to promote the benefit of the capital market and improve the capital market. 

We listen a lot to our customers. We are very proactive, meeting companies every day to talk to them about the capital market. This year has been a stellar year for the Indonesia stock exchange and we need to prepare the pipeline for next year too.

Now, in terms of state-backed funds, it will be good to have [them]. I’m less worried about capital and more worried about really having awesome companies in the public market in Indonesia.

The Indonesian government is also seeking to raise capital by listing some of the state-owned enterprises (SOEs). What sort of investor demand do you expect for the SOEs versus the younger tech companies?

I think there will be strong demand. So, our minister of state-owned enterprise, as well as the vice ministers, come from the private sector. Pak Erick Thohir [the SOE minister] knows it well. Pak Pahala [Deputy SOE minister Pahala Mansury] and Pak Tiko [Deputy SOE minister Kartika Wirjoatmodjo] were at Mandiri. 

You would expect some of these companies to be really strong ones, I know that for one of them, they have already got a bed for the entire book. This is going to be a $1.5 billion type of IPO, almost Bukalapak size. So I’m excited about that.

There is also a question about Bukalapak on whether it will be included in the MSCI Indonesia Index in November.

On November, I have to check. To be honest, it’s just [a matter of] timing given the market cap and the size of the IPO. I don’t see any reason for it not to be there. 

As the regulatory crackdown in China continues, it’s likely to drive asset managers to other destinations. Do you think the IDX could benefit from what’s happening there? 

I think it drives demand in the private market. My real job actually is in the investment [world]. You see a lot of demand coming in for private companies. The public market is actually more about supply.

In the private market, we’re seeing significant flow coming in from mostly institutional investors coming from the US and Europe coming into our part of the world. And I think the thesis is very simple. Indonesia is perhaps one of the two countries in the world with significant size – in terms of population and addressable market – that both US and China want to have an influence on. Everyone is fighting through capital and we have benefitted tremendously from that in the private market and I don’t expect less when it comes to the public market. It is more about the momentum and driving bigger and bigger companies to list on the Indonesia stock exchange.  

Indonesian firms have raised a record $2.26 billion in the market, according to Bloomberg. Could 2022 top this? And what other listings apart from GoTo can we expect?

Next year, what you will see is think about some of the technology businesses that are 2013, 2014, 2015 vintages and they are probably at the right age, seven or eight years, to start considering the public market. We are talking to some of them to list. You are also seeing significant rights issues that probably will happen among the digital banks, simply because of regulatory requirements to increase capital. So you’ll see more of that.

And there’s a bit of a trend in the digital bank, buy now, pay later (BNPL) businesses or those that are in the B2B business, where they’ll see that the public market is probably the most efficient place to raise capital. And then e-commerce logistics where some companies have grown to the size where they may consider listing on a stock exchange.

That’s kind of where the market is going. I’m still very excited about this year, let alone next year.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.